Cashflow Analytics Mission-Critical for Credit Unions
As open banking transforms how financial data flows, credit unions find themselves at a pivotal moment – adapt strategically with cashflow analytics or risk falling behind.
For much of the past two decades, credit unions have been playing catch-up with digital-first competitors. And while the fate of Rule 1033 remains uncertain, it represents an inevitable shift in access to most credit union members' data by third parties, including fintechs and banks. Ultimately, this may create more opportunities for competing products and services to erode credit unions' share of member wallets.
The race is now on for credit unions to utilize their own first party data more effectively before competitors do. After all, nearly every credit union participates in open banking whether they realize this or not – fintechs, larger banks, and online lenders regularly access members' data through screen scraping or APIs.
The Secret Weapon in Your Core
While fintechs and other competitors need members' login credentials to access their data (and experience drop-offs due to friction and failed connections 40-60% of the time), credit unions have a natural advantage. You're already sitting on an ocean of data covering members' income, spending, savings, debt and more.
With the average credit union's share of direct deposit at around 50%, you may never need to look beyond first party data on your core to deliver more personalized products and services to those members. The challenge has traditionally been transforming this wealth of data into actionable insights that can be applied to operations and member service.
Moving Beyond Traditional Credit Bureaus
Cashflow underwriting has emerged as a powerful complement to data from traditional credit bureaus, offering a more holistic view of borrowers' financial health. While credit bureaus provide insights into credit history (widely regarded as indicators of "willingness" to repay), they don't capture real-time financial behaviors or the nuances of a borrower's current situation (their "ability" to repay).
Cashflow insights unlock a fuller view of the "five Cs" of credit that bureau data misses – providing up-to-the-minute history of income, spending and savings. This enables credit unions to confidently approve applications for creditworthy members overlooked by traditional credit scores, and to make more competitive offers based on personalized financial insights.
From Invisible to Visible: Serving the Underserved
Millions of Americans have limited or no credit files. With cashflow insights, credit unions can better serve traditionally underserved populations, including younger members who haven't established credit histories. This approach aligns perfectly with the credit union mission to provide financial access to all community members.
Traditional underwriting often fails these potential members, but their banking activity tells a much more nuanced story. Cashflow analytics can identify responsible financial behavior such as consistent income and prudent spending, helping more members access affordable credit instead of turning to predatory lenders.
Finding Hidden Liabilities
Services like Buy Now, Pay Later (BNPL) often create hidden liabilities that don't appear on traditional credit reports, making it challenging to assess members' true financial health. The increased leverage from these obligations can significantly impact risk profiles and result in unintentional debt overload.
With cashflow analytics, credit unions gain visibility into these otherwise hidden payment streams, allowing for more accurate debt-to-income calculations, better risk assessments, and ultimately more appropriate product offerings for each member.
Selecting the Right Cashflow Analytics Partner
As credit unions evaluate potential tech partners for cashflow analytics, several key factors should guide the decision-making process:
• First-to-market experience: Look for providers with proven track records in cashflow analytics. The most valuable partners have developed their platforms through real-world lending operations with substantial loan outcome data – not merely theoretical models or recent pivots into the space.
• End-to-end solution: Seek comprehensive platforms that span the entire lending lifecycle, from lead screening to post-origination monitoring, rather than basic aggregation tools that merely provide access to bank transaction data without sophisticated insights.
• Regulatory compliance: Ensure your partner maintains Consumer Reporting Agency (CRA) status, enabling adverse action capabilities while maintaining predictive power. This status indicates a commitment to regulatory compliance and consumer protections.
• Core-direct interface: Prioritize providers with direct integration capabilities with your core banking system. The most effective solutions offer zero-friction access to member data without requiring complicated technical implementations.
• Proven performance: Evaluate whether the provider's models are built on actual lending outcomes rather than theoretical projections. Ask for evidence of model performance in live lending environments at scale.
• Credit union focus: Select partners who understand the unique needs of credit unions, particularly the importance of leveraging first party data through core integrations and rewarding member loyalty.
The Path Forward
Implementing cashflow analytics doesn't have to happen all at once. Many credit unions begin with basic applications like automated income verification to reduce stipulations and accelerate approvals. From there, they progress to more sophisticated uses, such as incorporating cashflow risk scores into automated decisioning or developing personalized marketing based on financial insights.
The ultimate goal is full member visibility – going beyond traditional credit boxes to approve qualified members who would be missed with credit data alone, offering more competitive terms, and advising on complete financial wellness to further the success of both the credit union and its members.
A Critical Inflection Point
Cashflow analytics has emerged as a critical capability for competitive survival. As fintechs and big banks race to implement these technologies, credit unions have a unique window of opportunity to leverage their trusted relationships and member data advantage.
By partnering with the right cashflow analytics provider, credit unions can transform their lending operations, expand financial inclusion, and deliver the personalized member experience that larger competitors often struggle to match. In doing so, they not only defend against competitive threats but strengthen their core mission of people helping people in the communities they serve.